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Chapter 11 Could Decimate Big Three Dealers


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Dealership lawyers predict that Chapter 11 filings by any of the Big Three would "kill many of its dealerships quickly" even if the companies successfully reorganize, says Automotive News. The situation would place dealerships into an immediate cash shortage from which many would simply not recover.

What money would they miss out on in the event of Chapter 11? Automotive News says sales incentives, holdbacks, and warranty reimbursement payments from automakers direct to dealers would all cease, and with the current dearth of auto sales, this scenario could be the final turning point for dealers and the catalyst for their failure.

Bankruptcy court might allow automakers to pay dealerships just small fractions of the money they owe, and even those payments could be significantly delayed. Some industry pundits are claiming that it's high time that the domestics' (especially GM) sprawling, bloated dealer networks are dramatically trimmed, and it looks like Chapter 11 might just force that to happen. On the other hand, GM's Wagoner claims that nobody wants to buy from a bankrupt automaker. Wagoner cited research that claimed 80 percent of buyers would not consider purchasing a vehicle from a bankrupt automaker.

Would you buy a fantastically designed, great-driving vehicle from a bankrupt automaker? How about a dowdy little Daewoo Pontiac G3?--Colin Mathews
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Comments (8)
  1. Daewoo and Hyundais (Aveo) are out but the last of the crop, pre-bankruptcy Corvette (Z06 anyone?) would be a hot item, an instant classic, and possibly even a decent investment.
    A G8 GT would also find its way into my garage at a 33% discount.

  2. The question is: Will the US Govt allow GM to cut dealers without a penalty like they saw when GM closed Oldsmobile? Otherwise how else could the drop any brands and/or streamline?
    They haven't shuttered Buick, Hummer or Saturn because they couldn't afford the penalties.

  3. Long before this crisis, as GM abnd ford were losing market share year after year, they had WAY too many dealers.
    Now GM has a laughable 7,500 when TOyota does well with only 1,500.
    Utterly ridiculous. And TOyota sells almost as many cars as GM (and at least far more than half the cars GM sells).
    SO the HEALTHY dealer number would require at least HALF, if not two thirds, of these dealers to shut down one way or another. By continuing to operate, they make every single one of them unprofitable.

  4. They need to hack away at that dealer network. Colin sure is irritated by that G3..huh :-) I'd like to know more about that little Mitsubishi Colt.

  5. Lost in all this bankruptcy talk is the fact that the terms that the automakers pay out on are already extended 4-6 weeks or more. So as a supplier, you have a months worth of receivables hanging out there. If they file Ch. 11, that money is gone. Suppliers will fall like dominoes.

  6. Jack - YES! The G3 bums me way out, because I know that Pontiac can do much, much better. But on that note...I promise I'll stop with the G3 bashing. After I go off just one more time ;-) Isn't is strange that american automakers seem to equate smaller models with lesser numbers with cheapness and low content? Look at BMW - whether a 7, 6, 5, 3, or 1 series, they are all German-designed, well-equipped, fun-to-drive machines that don't (even in 1-series guise) make you feel like you bought the cheapie model. Then again, even the 1-series will hit you hard in the wallet. But even the cheapest Honda Fit doesn't make you feel like you lost out. The G3 is an old-think small car, and it's the kind of product that has no place in the lineup of a revitalized GM. I think the CEOs of the big three should be forced to drive their smallest, cheapest vehicle to work everyday. Honda's Fukui would carve corners and giggle all the way to work in a Fit Sport. You would hear Nardelli's Jeep Patriot screaming at max RPM from blocks away due to its ill-conceived CVT, with the mega-rich CEO fuming behind the wheel. Mulally would be humbled, but not totally depressed, behind the wheel of an adequate Focus (but you could bet we'd see the European Focus brought to market much sooner after a week or so of Mulally's sentence). As for Wagoner? I'd love to see that guy forced into a G3 automatic for a week. Perhaps that would bring about a sea change in GM's product planning boardrooms when it comes to that automaker's small cars.

  7. Bankruptcy is not an option,but a reorganization,brokered by the government is essential. ALL Parties, especially the UAW must accept massive cuts. This will cause significant pain for many, but it's better than the massive layoffs that would follow bankruptcy or a merger (another no go).There are ways to ease the union concessions, perhaps government subsidized benifits as a model of universal health care. Detroit MUST have parity with the transplants to go foward. Sorry guys but the UAW must accept this fact of life or they will be gone. Join the 21st century or bye,bye. Management must accept massive cuts in compensation or find another line of work and work rules must be redone to save jobs and the manufactures. I honestly feel the Big Three will make it but import resrictions must also be seriously considered. Why are we doing all the suffering? Why the love affair with imports? They don't play on a level playing field, it's time to give our team a break.

  8. At almost any other time in our economy the marginal changes GM made would have been good enough to get by. Dump the health care--check. Two tier wage scale--check. But this economic tsunami is not going to give them the chance to recover. A government sponsored prepackaged bankruptcy is in the taxpayers best interest if it pays off creditors while allowing GM to downsize. 5000 dealers need to go--everyone concedes that, though that has largely been the state's doing. The question is how do you choose winner and losers in this market? If no answer can be found, standard bankruptcy should be the default.

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